Talking to Luxor Pool on Crypto Mining: Intel Asics, Ethereum POS and US Centralization
Ethan Vera (Luxor COO)
Colin Harper（Luxor Research Director）
1 Will Intel chips challenge the traditional pattern?
COLIN: It will certainly benefit miners to have another major ASIC manufacturer competing for market share in the hardware space. For North American miners, a domestic ASIC miner producer is a very positive development.
ETHAN: The introduction of intel may also shake up the form factors of miners, with new chips being built for a more traditional style data center.
COLIN: In its public filing, GRIID said that it purchased 25% of Intel’s initial allocation of chips. Intel will probably ship all of those this year, though the supply chain congestion and other acts of misfortune could delay the deliver of some shipments.
Price is credible as it comes from a public filining from GRIID. As for the price being lower, we’ve seen this with the Antminer S19 XP ($75/TH for the first preorder batch). It’s pretty common for new miners to have lower prices for the intitial orders. Once those rigs hit the resale market (unless ASIC prices have fallen signficiantly), they’ll probably sell for more than the companies bought them for.
Bitmain is definitely still the dominant player. We estimate that Bitmain machines make up 70% of the market, with MicroBT capturing another 25%, and Canaan, Innosilicon, and other manufacturers occupying the final 5%.
COLIN: Blockstream and Block (formerly Square) are worth keeping an eye on. ePIC Blockchain has been developing a Bitcoin ASIC as well. I’d say that, if any, these four companies are positioned to produce competitive machines.
2 Will Ethereum POW go smoothly? Can other cryptos such as ETC take over the power of graphics cards?
COLIN: We’re of the opinion that POW Ethereum isn’t going away anytime soon. But if Ethereum goes POS (which is frankly looking less and less viable with each update from its developers) then other altcoins will soak up Ethereum’s hashrate.
ETHAN: However, the amount of revenue on these chains wont change overnight so the value of each GH of hashrate will decrease significantly.
3 Is the rise in energy prices now causing the rise in U.S. electricity price
Yes, 2021 saw the fastest rise in US electricity prices since 2008. Prices will likely continue to inflate throughout 2022, depending on the situation in the Ukraine and global supply chain recovery as we emerge from COVID shutdowns. Long term we think it will be a net positive for the energy infrastructure in the US, as it will lead to more projects being funded.
4 Is it still a good choice for mining companies to go public? Will the trend of becoming btc holders change? What other big mining companies are going to go public this year?
ETHAN: Public markets allow miners to tap into new pools of capital that are otherwise unavailable to private companies. It also provides a more efficient exit mechanism for shareholders to get liquidity for their holding. While the market has cooled off since 2021, we do believe there will be a number of new companies going public this year, including the ones previously announced such as Prime Block and Griid.
5 Will the mining industry become an over-centralized problem similar to China's for the United States?
COLIN: Personally, I don’t think hashrate concentration in the US poses any risk. The US has a federated state structure that makes it one of the better places from a legal standpoint to mine (for example, an all-out-ban on mining in the US would be nearly impossible to orchestrate given the US’s court system and states’ rights). Additionally, one of the problems with mining centralization in China stemmed from the fact that basically every aspect of the mining operational stack (the miners, mining pools, and ASIC supplies) were concentrated in China–post ban, each of these sectors of the mining economy have become more geographically distributed.
One last note here: miners operate in their own self interest and are strongly incentivized against attacking the network. I’m of the opinion that miners could be concentrated in a single place and they do not pose a threat to the network by themselves (they do pose a threat to the network via state-capture, but per my points above, I think this is much less likely to happen in the US than in other countries).
6 Is US regulation a burden for POW mining in the future?
COLIN: It really depends on how stringent legislators and regulators will be. So far, there’s nothing burdensome about how miners are treated, but of course that could change. Congress, for instance, attempted to push through a provision in its recent infrastructure bill to classify miners as brokers for tax purposes. We’ve also seen some senators propose a bill that would make miners liable under sanctions law for processing transactions from Russian individuals.
Regulation could be a hindrance, but nothing has come to fruition that saddles miners with overbearing regulation as of late. In addition, US state laws protect miners from the federal government to a degree much larger than most other nations.
7 In addition to the United States, which other countries in the world will be more potential regions?
COLIN: We’re very bullish on bitcoin mining in Canada and in South America, particularly Venezuela, Paraguay, Argentina, and Colombia. Russia is also very popular, while Iran and Kazakhstan are falling out of favor due to grid and political instability.
ETHAN: We think that countries such as Norway have a bright future for mining, and must stay clear of any potential EU regulation put on the other European nations.
8 Any suggestions for Chinese miners who want to go to North America? Maybe you can introduce yourself here.
ETHAN: When evaluating a move to North America, we would suggest that Chinese miners spend time diligencing their counterparts. Usually, the best deal (in terms of cost) on paper is given by a counterpart that has a lower chance of execution. So the key here is that cheaper is not always better, and cutting costs up front will likely lead to lower profits over the long term. Luxor is always open to exploring new business opportunities with Chinese miners looking for a new home across the Pacific.
9 What do you predict the price of Bitcoin will be when the Fed raises interest rates for multiple rounds this year? If in the worst case that bitcoin even below $20-30k, what will be the impact on the mining industry?
ETHAN: We think large interest rate hikes are unlikely, there may be a series of hikes but within 75 bps (0.75%). Overall with rising rates we think holding all else equal it will be a headwind for the price of Bitcoin, however there are other things at play here that is positioning Bitcoin well as a world reserve currency. Miners that optimize for low-cost operations and good execution will be able to weather the short term volatile hashprice markets.
10 Now many listed companies save all the bitcoins they have mined and become holders. Is this behavior sustainable?
COLIN: It’s a little less than half, I would say, but basically all of the big miners (1 EH/+) do it at this point. As for whether or not it’s suistanable, they can pay for their operations by selling equity (which generally makes shareholders unhappy, because it dilutes share value) or via financing (taking out a loan). There’s a balance tobe struck and, if interest rates rise high enough, miners will have fewer attractive financing options. They can always take bitcoin-backed loans, but this also becomes less attractive in a higher interest rate environment. Many miners will hodl as long as they can, but market conditions depending, some will inevitably have to sell.